BEAM: Return Of The Income Tax Repeal

Gov. Bobby Jindal wants to do away with the state income tax, and conservatives are elated over the possibility. The governor was lukewarm to the idea two years ago, but he has obviously had a change of heart. Eliminating individual and corporate income taxes is now the key part of a tax reform plan the governor said he will pursue when the Legislature meets in April.

Former state Sen. Rob Marionneaux, D-Livonia, and Rep. Hunter Greene, R-Baton Rouge, authored two repeal bills in 2011. They amended them to phase out the income taxes over a 5- or 10-year period when it appeared any speedier repeal would be met with stiff opposition. Even that compromise wasn’t enough to pass a weaker bill that only set up a special committee charged with coming up with a repeal plan by Jan. 6, 2012.

Why would anyone in his right mind oppose eliminating incomes taxes in Louisiana? For starters, Jindal said he wasn’t going to take the issue seriously until supporters came up with a spending plan. It appears he has put together a spending plan of his own.

Legislators also voiced reservations two years ago and refused to go along. Chief among the doubters was none other than state Senate President John Alario, who now shepherds Jindal’s programs through the upper chamber.

“We need to get this slowed down somewhat,” Alario told his colleagues in 2011.

Alario re-routed Marionneaux’s income tax repeal bill to the Senate Finance Committee after it had been approved 7-1 by the Senate Revenue and Fiscal Affairs Committee. It never came up for a vote. The House never voted on Greene’s legislation, either.

The odds are Alario will now say he has experienced an awakening.

OK, how much money are we talking about here? During the year that ended June 30, 2012, the state collected $2.5 billion in individual income taxes and $374 million in corporate taxes. That is nearly $3 billion total. However, that is only part of the problem. Lawmakers are also faced with a projected shortfall in the 2013-14 state budget of $1.2 billion.

Now, it’s a $4 billion problem. Higher state sales taxes are the only revenue source capable of making up a big chunk of that $4 billion. The current 4-cent state sales tax brought in $2.6 billion last year. Double that and you are still just over halfway home. However, the highest increase even being considered by the Jindal administration is 3 percent, or a total state sales tax of 7 percent.

Add that to local sales taxes that are 4 or 5 percent, and we are talking about a sales tax of about 11 or 12 percent. The Tax Foundation has already reported that Louisiana has the third highest sales tax rate in the United States when state and local taxes are added together — a combined rate averaging almost 8.9 percent.

Tim Barfield, a key administration spokesman on the tax issue, said there are other options in addition to a higher sales tax. Some sales tax exemptions could be eliminated, he said, and tobacco and other sin taxes could be increased.

Barfield said groceries, medicine, utilities and gasoline are exempt from the state sales tax, and that wouldn’t change. Of course it won’t. Those exemptions are protected in the constitution and getting the voters to change wouldn’t get to first base.

No one will argue with Alario, who said, “The devil is in the details.” And right now we don’t know any details.

Sales taxes are a heavy burden for the state’s poor, but Barfield said they would be protected from higher taxes.

“They would be in no worse position than they are today,” he said.

Democratic Party spokesmen aren’t so sure.

“This proposal is extremely regressive in nature and we’d have to be very, very careful before we take that particular step,” said Rep. John Bel Edwards, D-Amite, chairman of the House Democratic Caucus.

Texas doesn’t levy an income tax, and conservatives say that is why Texas is stealing Louisiana industries. You have to wonder about that in light of the billions of dollars industries are getting ready to spend just in Southwest Louisiana. However, there is no question the absence of an income tax is welcome news in a lot of quarters.

Other states without income taxes are Alaska, Florida, Nevada, South Dakota, Washington and Wyoming. New Hampshire and Tennessee only apply state income taxes to interest and dividends.

On the plus side, income taxes are deductible on federal income tax returns and sales taxes are not. Property taxes are also higher in states without income taxes.

Opponents of Jindal’s plan say he likes to cut taxes for wealthier citizens and then cut health care and higher education to pay for the cuts. They believe persons living near the borders of other states will shop outside Louisiana or make wider use of online purchases to avoid higher sales taxes. Buyers are supposed to pay state sales taxes on their Internet purchases, but enforcement is virtually impossible.

Actually, there isn’t much surprise about the reaction to Jindal’s plan. Conservatives love it; liberals don’t. What we don’t know is how the vast majority in between feels.

We will have a better handle on that when the Legislature considers the governor’s plan. That is when we will find out whether two-thirds of its members have also had a change of heart on this issue. That is the margin that would be needed to increase the state’s sales taxes.

Jim Beam, the retired editor of the Lake Charles American Press, has covered people and politics for more than five decades. Contact him at 337-494-4025 or jbeam@americanpress.com.

With a sales/consumption tax everyone gets to pay taxes at the same rate. There are no special interest exemptions, etc. to enlarge the code and the politicians lose a large part of their power over the people. The special interest lobbyists would largely have nothing to do. Who will be opposing the repeal of the income tax? Follow the money.

LA may have the third-highest weighted sales tax rate for state/local. but is in the middle of the pack when it comes to actual per capita collection, precisely because of the exemptions. So even if the rate went well above the highest (it won't actually be the highest state rate, but the highest combined state/local weighted rate), it would not be unreasonable because of all of the exemptions.